Fed Chair Powell: 'We Are Prepared To Adjust'

The S&P 500 traded mostly flat Tuesday while Federal Reserve Chair Jerome Powell answered questions in front of the Senate Finance Committee. Among the topics Powell discussed were rising U.S. debt levels and the “Modern Monetary Theory” behind a the popular progressive “Green New Deal” plan proposed by Rep. Alexandra Ocasio-Cortez.

Default Not An Option

Powell told Congress the United States should take its national debt situation very seriously. He said not raising the debt ceiling and failing to meet America’s financial obligations should not even be considered.

“It's beyond even consideration. The idea that the U.S. would not honor all of its obligations and pay them when due is something that can't even be considered," Powell said.

If Congress does not act to raise the debt ceiling once again before March 2, the potential for the U.S. to default on its debts will once again come into play.

Green New Deal

On the topic of fiscal responsibility, Powell also addressed Ocasio-Cortez’s Green New Deal, which has become a rallying point for more progressive members of the Democratic Party. Powell said borrowing large amounts of money to pay for social programs such as the Green New Deal, free college tuition and Medicare for all is not financially feasible.

“The idea that deficits don't matter for countries that can borrow in their own currency I think is just wrong,” Powell said.

Mixed Numbers

Powell also updated investors on his general feelings about the U.S. economy. He said the last couple of months have been a challenge given some mixed data points.

“While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” Powell said.

Powell said the Fed’s recent decision to pause its interest rate hikes was based on a drop in inflation and concerns about global economic developments.

“Going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve,” Powell said.

He also emphasized the Fed’s flexibility related to its program to roll-off its balance sheet by selling assets, which he had previously said was on “autopilot” back in December.

“I would note that we are prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments,” Powell said Tuesday.

Yellen’s Comments

Powell was also asked whether he agrees with his predecessor Janet Yellen, who criticized Trump’s understanding of economics and the role of the Federal Reserve this week. “I doubt that [Trump] would even be able to say that the Fed’s goals are maximum employment and price stability,” Yellen said.

Trump has repeatedly been openly critical of Powell and the Fed, but Powell said Tuesday he “won’t have any comment” related to Trump’s economic prowess. Powell also refused to comment when asked if he has been in communication with the White House about interest rates.

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